STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of December 4, 1998, by and among
YOUNETWORK CORPORATION, a New York corporation (the "Company"), and each of the
Parties signatory hereto.
R E C I T A L S:
WHEREAS, the Company is authorized by its Amended Certificate of
Incorporation to issue 200 shares of common stock, no par value ("Common
Stock");
WHEREAS, the Company has issued 36.5 shares of Common Stock to each of
Xxxx Xxxxxx and Xxx X. Xxxxxxxx (collectively, the "Management Shareholders")
for a total of 73 shares of Common Stock, such shares being all the shares of
Common Stock issued and outstanding;
WHEREAS, pursuant to a Stock Purchase Agreement, dated as of December
__, 1998 (the "Stock Purchase Agreement"), between the Company, Xxxxx Xxxxxxxxx
and Xxxxxxxxx Xxxxxxxxxx ^ (collectively, the "Investors"), the Investors are
purchasing from the Company, for an aggregate purchase price of $200,000 (i) an
aggregate of 27 shares of Common Stock (the "Purchased Shares") representing
27% of the issued and outstanding Common Stock, on a fully diluted basis; and
(ii) Common Stock purchase warrants (the "Purchase Warrants") to purchase in
the aggregate such number of shares of Common Stock, at nominal consideration,
as shall equal, in the aggregate when added to the Purchased Shares, 27% of the
issued and outstanding Common Stock of the Company on a fully diluted basis,
immediately following the sale of additional Common Stock by the Company in
consideration of the first $400,000 of Common Stock sale proceeds received by
the Company following the date of the Stock Purchase Agreement;
WHEREAS, the Company, the Investors and the Management Shareholders
desire to set forth their agreement concerning the management of the Company
and such other matters as are set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual and
dependent promises set forth in this Agreement, the Company, the Investors and
the Management Shareholders agree as follows:
ARTICLE I
DEFINITIONS AND OTHER GENERAL MATTERS
SECTION 1.01. Definitions. The following terms shall be used in this
Agreement with the meanings set forth in this Section 1.01:
"Affiliate" means, with respect to any person or entity, any other
person or entity that directly or indirectly through one or more intermediates
controls, is controlled by or is under common control with the first specified
person or entity.
"Board" means the Board of Directors of the Company.
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"Business" means the development, marketing and operation of an on
line Internet consumer buying network.
"By-laws" means the restated by-laws of the Company.
"CEO" means the officer elected by the Board to the post designated in
the By-laws as the chief executive officer of the Company. Xxxxxx Xxxxxxxx will
be the initial CEO and Chairman of the Board.
"Certificate of Incorporation" means the Restated Certificate of
Incorporation of the Company.
"Closing" shall have the meaning given in the Stock Purchase
Agreement, dated as of December __, 1998, between the Company and the
Investors.
"Common Stock" means the common stock, no par value, of the Company.
"Consenting Stockholder" means any beneficial owner of shares of
Voting Securities that is a party to this Agreement.
"Significant Transaction" means, with respect to the Company or any
affiliates, any of the following actions:
(A) conducting any business other than the Business;
(B) (i) any creation of (x) any additional class of capital stock or
(y) any security having a direct or indirect equity participation in the
Company or any affiliate or (ii) the sale or issuance of shares of capital
stock or warrants, options or rights to acquire shares of capital stock or
securities convertible into or exchangeable for capital stock or any security
having a direct or indirect equity participation in the Company or any
affiliate;
(C) any declaration or issuance of any dividend or other distribution
on any shares of capital stock or any payment on account of the purchase,
redemption, retirement or other acquisition for value of any shares of capital
stock;
(D) any transaction or contract with a value of $10,000 or more;
(E) any amendment to or modification of any provision of the
Certificate of Incorporation or By-laws of the Company;
(F) any change in the auditors for, or in the accounting policies or
procedures of, the Company;
(G) entering into any agreement or obtaining any license or franchise
which restricts the transfer of shares of Common Stock or Preferred Stock;
(H) any consolidation or merger of the Company or its affiliates with
any other entity:
(I) any sale of all or substantially all of the assets of the Company
or its affiliates;
(J) any executive employment contract;
(K) payment of salaries to any officer at a rate of more than $85,000
per annum.
(L) change of required signatories on the Company's bank accounts;
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(M) election of officers.
"Voting Securities" means the Common Stock.
ARTICLE II
VOTING
SECTION 2.01. Voting; Written Consent. (a) Any agreement by the
Consenting Stockholders herein to vote their shares of Voting Securities in a
certain manner shall be deemed, in each instance, to include an agreement by
each Consenting Stockholder to use such Consenting Stockholder's best efforts
and to take all actions necessary to call, or cause the Company and the
appropriate officers and directors of the Company to call, as promptly as
practicable, a special or annual meeting of stockholders or to act by written
consent.
(b) When any action is required to be taken by a Consenting
Stockholder pursuant to this Agreement, such Consenting Stockholder
shall take all steps necessary to implement such action, including,
without limitation, executing or causing to be executed, as promptly
as practicable, a consent in writing in lieu of an annual or special
meeting of the stockholders pursuant to Section 615 of the Business
Corporation Law of New York or any successor statute thereto to effect
such stockholder action.
(c) Unless expressly stated to the contrary herein, any
action requiring the vote of the directors (or any committee thereof)
may be effected by consent in lieu of a meeting of the directors or
committee members, as the case may be, pursuant to Section 708 of the
Business Corporation Law of New York or any successor statute thereto.
ARTICLE III
BOARD OF DIRECTORS AND STOCKHOLDERS
SECTION 3.01. Composition of the Board of Directors. (a) General. The
Board shall initially consist of three directors, of which (i) the Investors
shall have the right to designate one individual to serve as a director and
(ii) the Management Shareholders shall have the right to designate two
individuals to serve as directors. In no event shall the Board be composed of
fewer than three directors. The ratio of directors designated by the Investors
to those designated by the Management Shareholders shall be maintained as set
forth in this Section 3.01 should the Board be increased in number.
(b) Election of Directors. Each Consenting Stockholder hereby
agrees to vote all shares of Voting Securities owned by such
Consenting Stockholder to cause the election to the Board of Directors
of the individuals designated by the Consenting Stockholders in
accordance with this Section 2.01.
SECTION 3.02. Conflicting Charter or By-law Provisions. Each
Consenting Stockholder shall vote its shares of Common Stock, and shall take
all other actions necessary, to ensure that the Certificate of Incorporation
and By-laws facilitate and do not at any time conflict with the provisions of
this Agreement.
SECTION 3.O3. Action By the Board of Directors.
(a) Except as otherwise provided in Sections 3.03(b), all
actions of the Board of Directors shall require the affirmative vote
of the
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majority of directors present at a duly convened meeting of the
Board at which a quorum is present or, in lieu of a meeting, by the
unanimous written consent of the members of the Board of Directors.
(b) Neither the Company nor any entity controlled by the
Company shall take, and no party to this Agreement shall cause the
Company or any entity controlled by the Company to take, any action
with respect to any Significant Transaction without
(i) providing to the directors at least 2 business days'
notice of any meeting of the Board at which a Significant Transaction
is proposed to be approved, which notice shall describe such proposed
Significant Transaction and
(ii) the unanimous approval of all of the directors.
ARTICLE IV
TRANSFERS
SECTION 4.01. Restrictions on Transfers. Management Shareholders may
transfer Common Stock only if a sale or transfer ^ shall include a cash offer
to bring the Investors along on the same terms for that percentage of their
ownership ^ as the sale represents of the total Management Shareholders
holdings, and provided that the Management Shareholders shall retain ownership
interest of at least 40% of the equity securities of the Company prior to a
Public Offering.
SECTION 4.02. First Refusal. The Investors pro rata to their
respective share ownership shall have a right of first refusal on all shares
held by Management Shareholders, excluding shares transferred in accordance
with Section 4.01. ^ Management Shareholders pro rata to their respective share
ownership shall have a right of first refusal on all shares held by the
Investors ^^. The foregoing right of first refusal shall not apply to sales in
Public Offerings or to sales in the public market subsequent to such a Public
Offering. In the event that any Management Shareholder or any Investor
Shareholder shall desire to sell his shares pursuant to a bona fide offer
("Offer") to purchase such shares, he shall first give written notice of such
Offer and the terms and conditions thereof to the Investor Shareholders in the
case of a proposed sale by a Management Shareholder or to the Management
Shareholders in the case of a proposed sale by an Investors Shareholder. The
Shareholders receiving such notice shall have a right within a period of ten
business days to purchase the offered shares on the same terms and conditions
as set forth in the Offer. In the event such right is not exercised, the
offered shares may be sold pursuant to the terms of the Offer within a period
of sixty days thereafter, provided that as a conditions to such sale, the
purchasers shall agree to be bound by the terms of this Agreement
SECTION 4.03 Permitted Transfers. Notwithstanding anything provided in
Sections 4.01 or 4.02 to the contrary, any Consenting Shareholder may transfer
his shares, at any time during the term of this Agreement, to either a family
member, or to a family trust or a corporation or partnership in which such
shareholder has a majority controlling interest, providing that any such
transferee, as a condition to such transfer, shall first agree to be subject to
the terms and conditions of this agreement.
SECTION 4.04 Officers. The officers of the Company shall be as
follows, subject to removal and/or change by the Board of Directors:
Chief Executive Officer Xxx X. Xxxxxxxx
President Xxxx Xxxxxx
Secretary Xxxxx X. Xxxxxxxxx
SECTION 4.05 Bank Accounts. All bank accounts maintained by the
Company shall be established pursuant to resolution adopted by the Board of
Directors,
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which resolution shall provide that the Chief Executive, President
and Secretary shall each be authorized signatories on any such account and that
any check for an amount in excess of $5,000 shall require the signatures of at
least two officers, one of whom shall be the Secretary.
SECTION 4.06. Legend. Each certificate evidencing outstanding shares
of Voting Securities held by a Consenting Stockholder shall bear the following
legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO REGISTRATION OF
TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER
UNLESS SUCH TRANSFER IS MADE IN CONNECTION WITH AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH ACT DOES NOT APPLY.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCKHOLDERS' AGREEMENT,
DATED AS OF DECEMBER __, 1998, AS IT MAY BE AMENDED FROM TIME TO TIME,
A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
ISSUER. NO REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE MADE ON
THE BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH RESTRICTIONS SHALL HAVE
BEEN COMPLIED WITH."
All certificates evidencing shares of Voting Securities hereafter issued by the
Company to a Consenting Stockholder shall bear the legend set forth above. Upon
termination of this Agreement or upon registration of such shares of Voting
Securities in accordance with this Agreement and then upon surrender to the
Company of any certificates bearing the legend set forth above, the Company
shall reissue such certificates to the owner thereof without such legend.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Right of Audit. The Investors shall have rights upon
reasonable notice to inspect the Company books and records during normal
business hours and to audit at its own expense provided that such inspection or
audit shall not unduly interfere with the conduct of the Company's business.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Representations. Each of the parties hereto represents
that this Agreement has been duly authorized, executed and delivered by such
party and constitutes a legal, valid and binding obligation of such party,
enforceable against it in accordance with the terms of this Agreement.
SECTION 6.02. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of their terms hereof, in addition to any
other remedy at law or in equity.
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SECTION 6.03. Amendments and Waivers. Any term of this Agreement may
be amended and the observance of any such term may be waived (either generally
or in a particular instance and either retroactively or prospectively) only
with the written consent of the Company and the Investors. Each Consenting
Stockholder shall be bound by any amendment or waiver authorized by this
Section 6.03, whether or not such Consenting Stockholder shall have consented
thereto.
SECTION 6.04. Notices. All notices and other communications provided
for herein shall be in writing and shall be delivered by hand, telecopied or
sent by certified or registered mail, return receipt requested, postage
prepaid, addressed in the manner set forth on the signature pages of this
Agreement (or in such other manner for a party as shall be specified in a
notice given in accordance with this Section 6.04). All such notices shall be
conclusively deemed to be received and shall be effective, if sent by hand
delivery or telecopied, upon receipt, or if sent by registered or certified
mail, on the fifth day after the day on which such notice is mailed.
SECTION 6.05. Benefit: Successors and Assigns. Except as otherwise
provided herein, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns; provided, however, that this Agreement shall not inure to the benefit
of any prospective transferee unless such prospective transferee shall have
agreed in writing to be bound by the terms of this Agreement. No Consenting
Stockholder may assign any of its rights hereunder to any person other than a
transferee that has complied with the requirements of this Section 6.05 in all
respects. Nothing in this Agreement either express or implied is intended to
confer on any person other than the parties hereto and their respective
successors and permitted assigns, any rights, remedies or obligations under or
by reason of this Agreement.
SECTION 6.06. Termination. This Agreement shall terminate on
December 1, 2010, or such earlier time as either (i) the Investors collectively
no longer own at least 10% of the Common Stock of the Company on a fully
diluted basis; or (ii) the Company has completed a public offering of its
securities resulting in net proceeds to the Company of at least $10,000,000.
SECTION 5.07. Miscellaneous. This Agreement sets forth the entire
agreement and understanding among the parties hereto, and supersedes all prior
agreements and understandings, relating to the subject matter hereof. If any
term or other provision of this Agreement is held invalid, all other conditions
and provisions of this Agreement shall nevertheless remain in full force and
effect, unless the term or provision held invalid shall substantially impair
the benefits of the remaining portions of this Agreement and shall not limit or
otherwise affect the meaning hereof. This Agreement shall be governed by the
law of the State of New York. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement in their individual capacity or caused it to be duly executed by
their respective authorized signatories thereunto duly authorized as of the day
and year first above written.
YOUNETWORK CORPORATION
By:/s/ Xxxx Xxxxxx
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Name: Xxxx Xxxxxx
Title:
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Xxxxxxxxx Xxxxxxxxxx
By: /s/ Achilles Xxxxxxxxxx /s/ Xxx X. Xxxxxxxx
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Achilles Xxxxxxxxxx, Xxx X. Xxxxxxxx
her Attorney in Fact
/s/ Xxxxx Xxxxxxxxx
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Xxxxx Xxxxxxxxx
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